With any trading method you absolutely must have a set of rules to abide by, these rules set boundaries for your trading activities and helps to limit your emotional input whilst trading.  They will also help keep your trading structured. The following are the rules that I have in place for the Pivot Point Methodology I am working with currently.

RULES.

1. Anything can happen

What this means is the market can go anywhere it likes, so don’t become fixated on a specific direction because you have seen a particular signal or pattern. The market may not agree with your analysis and do the exact opposite for whatever reason so always keep an open mind and be prepared to change your oppinion.

2. Always use a stop loss order

This should be pretty self explanatory but never and I do mean never put on a trade without putting on a stop order at the same time. There is literally only one thing that we have any control over in the markets as a trader and that is our level of risk, this risk is our stop order and without a stop we have unlimited potential for loss so just use them.

3. Two strikes and your out

For me if I have two losing trades that’s it for the day I stop trading and close down my platform and go do something else.  For me after two losing trades I feel I can be mentally off my game and may not see things as clearly as I should. Also it is much harder coming back from 3 or even more losses. This helps me to protect my capital and allows me to not become to emotionally battered so I can get up the next day and trade with a clear head.

4. Set trading hours

I have specific trading hours and only trade within them, my trading hours are between 2am EST and 10am EST. Why these hours, well because I catch the Frankfurt open, the London open and the New York open.  These are in my opinion the best times to trade as that is when new players are coming into the market and is a great time to capture reversals in the current trend or continuations of the current trend as these new players all  get aboard the action.

5.Only use my specific signals to get into the market

In other words in my methodology I have specific signals that I look for to get into the market, an example of this would be a pin bar so the trick is to only use these specific signals  for my entries.  I usually get myself into trouble when I act on feelings or hunches about the market and this generally results in further losses.

6.Protect profits and move stops to break even

I am quite aggressive at moving my stops to break-even as I would much prefer to get stopped out for nothing than take a loss.  Yes sometimes the trade then goes your way and reaches your profit target SO WHAT I didn’t lose any money so I am happy. There will always be another trade so don’t ever forget that.

My philosophy is that the best trades go your way immediately and never look back, these are the trades that I endeavor to capture and am happy to get stopped out some times for nothing rather than take a loss.  This for me is quite discretionary but a good rule of thumb would be that when in profit the equivalent of your stop amount then move the stop to break-even.

7. I don’t have to trade every day

There will always be another trade so it is not necessary to trade every day, every so often I just take the day off and do something else and this generally refreshes me and lets me start the next day with a clear mind.

8. Trail stops with a portion of every trade

I have lost count of the number of times I have exited a trade for profit to only watch it go another 150 pips in my direction. By using a trailing stop on a portion of your position you can potentially capture a larger portion of these moves. Just think TREND DAY.

9.Always take profits

I always have a take profit order in place and never hesitate,  just take the profits as that is what it is all about, making money.

10.One win and your done

As soon as I have one winner on the table for the day I am done, no more trading until the next day. Where there is a partial position with a trailing stop it just handles itself and requires no input from me.  The reason that I do this is it prevents me from giving back my profits for the day.  This is a personal thing that I have found has really helped my trading and my profits.

Relax and Enjoy

This is not one of my rules more of a mantra I suppose.

Do it cause you love it that’s my motto.  If your not enjoying it then the chances of you being successful are highly unlikely.

Trade Well

Perry

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Here is a perfect trade example using pivot points, in the following chart you can see how the huge pin bar formed at the R3 level clearly rejecting it and indicating the potential for a reversal in price.

To mange this trade I take two positions to divide up my risk, on eighty percent of the position I set the take profit at the next pivot which in this case was the R2 pivot which was at 1.4891.  On the other twenty percent of the position I set a trailing stop in anticipation of the possibility of a trend day.  I have previously added this into my back testing and the results have proved to be quite good.  There are many times when the market just takes off and never looks back,  it is these times that a strategy like this can really capture some great profits.

You can just imagine my surprise when I awoke this morning to find that I am still in this trade due to this strategy and currently up 140 pips.

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Where will this trade go?  Well your guess is as good as mine and the best strategy I have found is just let the trailing stop do its work and I get stopped out when it is touched.  The market can do anything and go anywhere and there is always the possibility that we could see a second or subsequent trend day and capture a portion of it also.  This is where I just have to be patient and let the trade play out.

Look closely at the following chart and take notice how price reacts to these pivot points, you will notice at every level there is profit taking and further trading opportunities if you were that way inclined.  You can clearly see profit taking happening at the R1, CPP and the S1 and S3 levels.

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These pivot points are extremely powerful and if you are a day trader and you are not currently using them I would seriously recommend you place them on your charts and just see how accurate and predictive they are, you may be quite surprised.

I have been doing a lot more back-testing on this trading system and will update this info in my next post.

Trade Well

Perry

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Two trades were taken overnight, the first is circled in the previous image where you can clearly see how price formed a near perfect twin tower pattern right on the S1 pivot point. This trade was then stopped out an hour later for a loss of 24 pips.  This is profit taking happening as many other like minded traders who were previously short are taking profits at the pivot point. There is no way to distinguish the difference between this profit taking and a reversal which was what I anticipated this price action to be.  This is all just a part of trading and the reason why I use stops.

The second trade for me happened two hours later and was initiated after price confirmed that it was unable to significantly penetrate the S1 pivot point.  Here is a chart to help explain what I was seeing at the time.

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Price formed a spinning top just below S1 and was then followed by some solid buying as price pushed cleanly up through the pivot and closed well above it.  This was still not enough to get me into a trade though, it was the following price action that got me aboard the move.  It was when price retraced to the pivot and then clearly rejected it with the 2 spinning top/pin bar style candles that I entered the move. It was these buyers entering the market that finally convinced me that the odds favoured a move to the upside.

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Half of the position was taken of at the daily open for 50 pips and the stop was moved to break even. The remainder of the position was taken off at the central pivot point for 101 pips, this was a good days trading and the predicative power of the pivot points was plain to see on the day I feel. Pivots are one of the few leading indicators out there and if you do day trade and you are not using them it might be wise to put them on you charts and observe how price reacts to them, you may be pleasantly surprised.

Trade Well

Perry

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Why Load the Boat?

In all trading we identify opportunities through our analysis which we anticipate favor a price movement in one direction. One of the most challenging parts of trading the news can be getting filled where you want.  What makes this trade so special is the fact that this is the premise behind the trade.

Although this is a trade that does not happen very often it is a trade that offers some of the greatest risk to reward ratios I have ever experienced in day trading. The thing with news trading is it is notorious for wide spreads and poor fills.Now we need to consider why this is so, so that we can understand the advantage that this trade offers over other strategies.

Forex is a zero sum game, what this means is that for every buyer there has to be a seller or there is no trade. This is exactly what happens around these major announcements, many players are extremely risk averse at these times and therefore remove all there standing orders that they have in place and sit on the sidelines until after the volatility generated around news time has died down. The outcome of this is a major reduction in liquidity and therefore the chances of finding someone to take the other side of your trade are significantly reduced.

Many traders attempt to trade the news and fail miserably, this is because they don’t understand what is taking place at the time of the release. The number one biggest mistake a fledgling news trader can make is to try and capture the breakout of the release. They access the release and then place their order to then see it get filled 40 plus pips later. The best explanation for this is covered in this post The Structure of Forex Brokers, I recommend you read it first and then continue with this post.

This trade has a specific set of rules and things to look for and after you understand what is actually happening you can begin to see the enormous opportunities that exist. For this example I will use the same one I used for my News Trading for Easy Money Post. As I stated in that post, prior to news announcements especially the NFP price will often oscillate in a tight range prior to the release, when this happens it is quite easy to identify where the orders will be but is not a pre-requisite for the trade.  All I am really looking for are the most recent highs and lows.  I am talking about the last hour or two on the 5 min chart,  this chart shows what I am talking about.

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This is KEY for it is these highs and lows  that the bold breakout traders will place there orders outside of in anticipation of capturing the breakout.  It is also quite common for these same traders to place an order on both sides of this range in essence straddling the range in preparation for grabbing the breakout which ever way it goes.  It is these orders that I am targeting with the spike,   it is why the spike forms and therefore there is someone there to take the other side of the trade.

This is what makes this trade so appealing to me, the fact that my odds of getting in early on the move and getting filled are remarkably increased due to this phenomenon. In this example the forecast was -119k and the actual release was -11k, this is great news for the US economy and therefore the GBP/USD pair should see a significant fall in price.  In the next chart you can see the spike clearly and it is this spike that I endevour to catch.

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The previous high was 1.6664 and the high of the spike was 1.6672, 8 pips and then price reversed and proceeded to drop like a brick, price dropped over a 100 pips in the next 30 minutes.  If you fail to catch this first move then you simply stand aside and await the first retrace, once this forms you use one of the other strategies to look for your next entry.

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I stated earlier in the post that this trade does not happen that regularly but when it does I hope you can now see the opportunity this trade offers.  Please note that prior to the release it is best to drop down to the one minute chart as you get a much clearer view of the price action and can fine tune your entry.

This style of trading is not for the faint hearted and again I can’t stress the importance of back testing, this all happens pretty fast and you need to be on the ball to interpret the release and take action in seconds.  The most important thing is getting the announcement on time.

Most forums are useless for this style of trading as by the time you get the number it is to late.  Many brokers have instant news providers now and if not there are plenty of providers out there.  The best value for money that I have found is a website called TradeTheNews.com, they offer both a text platform and an audio platform.  The audio is the best choice as you get to hear the release rather than have to read it but this is all dependent on your budget, but as a whole once mastered the text is quite adequate.

I should have some videos up soon that will demonstrate clearly how to do the various news trades and I will elaborate more on trade management as well and profit taking,  I am also doing one demonstrating how I back test  these strategies which I feel will be immensely beneficial to many of you.

Perry

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News announcements generate some of the best trading opportunities that exist in the markets. This style of trading has one distinct advantage over other styles of day trading and that is from a time management  point of view. A news strategy allows you to pick exactly when you want to trade, you could pick just the very major announcements and just trade 5 or 6 times a month and potentially make quite a substantial income.

Some of these that I consider to be great opportunities are:

• NFP – Non Farm Payrolls
• Cash Rate
• CPI – Consumer Price Index
• Trade Balance
• GDP – Gross Domestic Product
• Retail Sales
• New Home Sales

This is by no means a comprehensive list and each country has different announcements that can effect it’s currency.  I only trade the US announcements and really only trade the eur/usd or gbp/usd on these types of trades. Forex Factory has  a good comprehensive calender here that will give you all the announcements for the week and rates them  as high, medium and low impact announcements.

Working out just how much of a surprise is the only real challenge with this type of trading and does require a bit of homework to ascertain what would be a minimum surprise for you to take a trade. To get these figures I have used a combination of  ForexTester (which anyone who follows this site will know I consider an absolute must for anyone wanting to succeed on this path) and Forex Factory that has a 10 year history of economic announcements on their site.

For all examples in this article I will use the NFP announcement as in my personal opinion it is the best of the best when it comes to news trading announcements.  For me I look to see a change of a minimum 80k in the number for me to even take a trade, anything less and that’s it I just turn off my computer and call it a day.  I recommend you all do your own back testing and armed with that knowledge you can choose at what level you feel you are comfortable the odds favor a decent move.

This strategy will complement My divergence strategy that I wrote about previously.  I am working on the same principal that when there is a significant surprise and as an example that it is positive for the currency, I am only interested in trading in that direction, this is paramount and trading the other way is next akin to trading against the trend.  This is a distinct advantage as  I now know which direction I am going to trade and now just need to find an optimum entry point, stop loss and profit target.

I rarely trade the breakout of the number as unless you have access to an exceptional broker the odds of getting filled are not good.  You can place a trade and get filled 50 pips later only to watch price retrace and take out your stop, I am yet to find a broker that you can get a decent fill in these scenarios.  There is one exception to this rule and that is  when  I witness a huge spike in price in the opposite direction to what I  expected. This to me is like waving a red flag at a bull, when I witness this type of price action it is time to load the boat.  I will generally go to my maximum level of risk  on this type of trade as the rewards can be exceptional.

Why do these spikes happen?  This is the market makers and banks targeting stops before taking the market in the right direction.  I see these situations all the time and they are what are known as false breakouts, these banks and market makers have the luxury of seeing exactly where all the orders are and if they are within their reach they will drive price in that direction, take out all the stops and then drive it back the other way and thus literally double dipping and accumulating more profits  for themselves.  I personally don’t have access to these orders but just by understanding what is happening I can capitalize on this situation and literally ride on their shirt tails.  I am writing a separate article on this trade so keep your eyes peeled for that one, it wont be far away and I will add a link to this post when It’s done.

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My goal in this situation is I want to wait for price to have its first run then when it starts to pull back I look for an entry to get in on the retrace.  This for me is completely discretionary and I have a number of things that I look for to enter a position. I use a combination of candlestick patterns, oscillators, a moving average, Fibonacci retracements, support and resistance and the count back.

Depending on the type of announcement depends on how large a move price will initially take.  For the NFP when the numbers meet my criteria I expect to see an initial move of between 50-90 pips.  It is possible to capture some of this move but it is definitely not the easy money, for this trade I am only after the easy money and this is simply a matter of waiting until all the players have cast their vote.   At this time we know the direction and are then awaiting a pull back in price for an entry opportunity to present itself.

The entry is then a matter of getting aboard the move once price has retraced.  You will have to establish your own entry criteria but what we are looking for is a reversal or a rejection of a price level, this could be as simple as a pin bar at the 50% fib level or any signal that meets your own personal criteria.

STOPS

To establish a stop position for this type of trade is very easy for me as trading these small time frames I am trying to keep my risk small and position size appropriately as large as I can in accordance with my own risk parameters.  I simply place my stop a few pips below the low of the reversal point I have identified as my entry.

Profit Targets

Setting profit targets is of major importance to the success of any trading strategy and extremely challenging for most new traders.  There is always the challenge of how to identify when to exit a position.  For most it is a matter of finding a balance between protecting profits that are currently on the table and exiting to early in the move and leaving a large percentage of the profits on the table.

This process for me is quite simple and  easy as I use three indicators to identify when to exit a position or at least take partial profits.  The indicators I use are support and resistance, recent swing highs and lows and the ADR or Average Daily Range.

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To Summarize the process should be like this:

1. Just before News is released asses where the profit targets are
   • What is the high for the day?
   • What is the low for the day?
   • What is the ADR for the currency pair?
   • What are the most recent swing highs and swing lows?
   • Project profit targets using the ADR
2. Once the figures are released we then assess them and ascertain whether they meet our trade criteria. This is a simple yes we are trading today as the figures are within our guidelines or no they don’t meet our criteria so no trade.
3. If the figures meet our guidelines it is then just a matter of observing price action and identifying the first significant retracement in price.
4. We then take a position using our entry rules.
5. Place the stop just beyond the high or low of the retracement.
6. Since we have already calculated our profit targets its is then just a matter of observing price and taking profits appropriately.

This is my News Trading in it’s simplest form and if this is not completely clear don’t panic as there will be plenty of follow up articles.  I am also making videos of trading examples which will make the whole process much clearer.  I will post the links to other articles in this post as I produce them.

Perry

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